Knowledge Base

Top tips before you 'spring' into action.

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Written by Greville Pabst

Created: 07 November 2016

Melbourne’s residential property market has created wealth for many astute homeowners and investors in recent years with figures revealing 35 consecutive quarters of growth during the most recent cycle, representing an increase of more than 42% to the median dwelling price in Melbourne.

However, the diverse landscape of Melbourne’s housing constituency means that not all property types and locations perform at the same level. While demand for well-located quality residential real estate remains healthy, cautious buyers are showing heightened discrimination to flawed properties.

As activity increases in spring, buyers seeking to make bargain purchases and quick profits should take heed of the following tips to ensure they avoid costly mistakes that may impact their investment down the track.

Considering buying the worst house on the best street?Buying the worst house on the best street can seem like a cost effective way of securing a desirable location, however, it is not without risk.

Often the common goal is to transform the property from the worst to one of the best properties on the street. However, any saving on the initial purchase is often quickly absorbed by renovations to improve the property.

Conversely, deciding to leave the dwelling in its original purchase condition can have negative implications for the property, which will be reflected in future capital growth.

It may be more cost-effective to buy a better property and forgo the expense, stress and risk of renovating.

Why thinking outside the box can be ineffective.When it comes to investing in property there is no need to reinvent the wheel. Properties that offer the best returns aren’t necessarily architecturally unique or modern. In fact, they are more commonly well-located period and pre 1970s properties.

Property selection isn’t a guessing game. Stick with tried and tested selection methodologies that rely on sales evidence, not speculated or high-risk returns or periphery incentives such as stamp duty savings.

A renovators dream can quickly turn into a nightmare.As the number of renovation programs on Australian television screens increases the would-be ‘handyman’ hidden inside us all considers the prospect of buying and renovating to make a quick buck. But novice renovators often underestimate the commitment required to transform a property, which can cost them significantly.

When deciding to renovate it is important to consider where the property is located, the type of property e.g. house or apartment, whether it will be a rented investment property or owner-occupied and who the potential buyers or tenants of the property are. Put simply, sellers should renovate to their target market.

It is also important to be cautious of overcapitalising a property, as the amount spent on renovations may not offer an equivalent return in the increased value of the property. A good rule of thumb is to not spend more than 40 per cent of the property’s value on renovations.

Why speculating is risky business.Purchasing on the basis of proposed future infrastructure such as roads, schools and shopping complexes is risky. Hundreds of development proposals are put on hold or denied every year and there’s also no guarantee that added amenities will add positive weight to local property prices.

When buying property this spring, remember there is no better way to measure an asset’s future growth than to look at its performance history. If in doubt seek professional advice from a qualified property adviser.

Like investors, homebuyers should invest in professional, independent and customised advice, if required, to assist with their home purchase.